A cross-border wrinkle on executive grants; Canadian companies cannot issue shares to insiders if there is undisclosed news, which precludes scheduled compensation

Regulatory differences between jurisdictions can complicate companies’ cross-border corporate governance practices. Partner Cornell Wright was sought for his perspective on the issue for an article in the Globe and Mail’s Report on Business. Below is an excerpt of the article.

In Canada, Toronto Stock Exchange listing rules do not allow boards to grant stock options to insiders if the company has material, undisclosed news, even if the grant date was predetermined and falls at the same time each year, says Toronto securities lawyer Cornell Wright of Torys LLP. While the TSX rule specifically mentions stock options, Mr. Wright said it is broadly interpreted to cover other grants such as share units that raise the same policy issues.

"They've specifically stated they don't view regular annual grants during those periods to be a mitigating factor," he said. "When we've worked with cross-border companies, it's a revelation to them that the Canadian rules work so differently." The Canadian standards reduce the opportunity for insiders to choose a favourable time to release good or bad news to improve the value of their new equity grants. But Mr. Wright said there are pros and cons to both countries' systems.

The obvious drawback with the American rules is that they can leave boards open to criticism about the optics of well-timed equity grants, which has been the result in Target's case. "In the U.S. you can do it, but you're going to potentially court reputation harm," Mr. Wright said. "Even though it's allowed, people are going to be left with a bad taste in their mouth."